COMMENTARY The National Association Of Realtors, which likes to bill itself as providing "the premier measurement of the residential real estate market," is restating sales figures for the last four years. (Coincidentally the exact duration of the real estate market implosion.) When the new numbers are released on Wednesday we will know how far beyond disastrous the situation really is.
The NAR says that as a result of "re-benchmarking" it found an "updrift" in estimates of home sales. Lawrence Yun, the NAR's chief economist, claims all this is nothing out of the ordinary:
Revision and re-benchmarking are very common in economic data. Because nearly all measurements make assumptions, any changes related to those underlying assumptions will lead to a drift in the measurement. One of the most important economic data is GDP (gross domestic product), produced by the Department of Commerce, and this data undergoes frequent revisions.
Dear Larry, the Commerce Department revises its number quarterly and clearly says that these are preliminary - not definitive - numbers. It turns out the NAR hasn't double checked its math in five years - leaving room for a lot of "updrift." Especially in the "unprecedented" recent changes in the real estate market.
According to Walter Molony of the NAR, the organization had relied on the U.S. Census, which is done every 10 years, to provide an independent benchmark of sales data. In the most recent tally, the Census Bureau changed what information it gathered - eliminating the information NAR had relied on. That means they were relying on information as much as a decade out of date. Even so, Molony says, "The Census information was the gold standard to go by."
A year ago NAR realized their model was off and began searching for a new source of information to base their numbers on, Molony said. They let the public know this had happened via a footnote added to each release. They continued to release sales numbers despite knowing they were off.
Under NAR's agreement with the SEC, it can't release any information on the existing-home sales revisions until Wednesday, but Molony characterized them as "notable" even though they won't change the month-to-month characterization of whether home sales went up or down. There's a lot of wiggle room in there.
If all this seems a bit harsh, consider what David Lereah, Larry's predecessor as chief economist for NAR, told CNN in 2009 after he left his job:
I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right in line with most forecasts. The difference was that I put a positive spin on it. It was easy to do during boom times, harder when times weren't good. I never thought the whole national real estate market would burst. ... I was a public spokesman writing about housing having a good future. I was wrong.
Maybe the NAR has shaped up and is flying right since Lereah left. However, they're going to have to go a long way to prove they don't have a vested interest in putting out numbers that don't always updrift.